Correlation Between NL Industries and Automatic Data

Can any of the company-specific risk be diversified away by investing in both NL Industries and Automatic Data at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining NL Industries and Automatic Data into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between NL Industries and Automatic Data Processing, you can compare the effects of market volatilities on NL Industries and Automatic Data and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in NL Industries with a short position of Automatic Data. Check out your portfolio center. Please also check ongoing floating volatility patterns of NL Industries and Automatic Data.

Diversification Opportunities for NL Industries and Automatic Data

-0.42

Correlation Coefficient

NL Industries  Automatic Data

Very good diversification

The 3 months correlation between NL Industries and Automatic is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding NL Industries and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing and NL Industries is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on NL Industries are associated (or correlated) with Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of NL Industries i.e., NL Industries and Automatic Data go up and down completely randomly.

Pair Corralation between NL Industries and Automatic Data

Allowing for the 90-day total investment horizon NL Industries is expected to under-perform the Automatic Data. In addition to that, NL Industries is 3.4 times more volatile than Automatic Data Processing. It trades about -0.06 of its total potential returns per unit of risk. Automatic Data Processing is currently generating about 0.05 per unit of volatility. If you would invest  30,535  in Automatic Data Processing on November 28, 2024 and sell it today you would earn a total of  685.00  from holding Automatic Data Processing or generate 2.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

NL Industries  vs.  Automatic Data Processing

NL Industries

Risk-Adjusted Performance

Very Weak

Over the last 90 days NL Industries has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's essential indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Automatic Data Processing

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental indicators, Automatic Data is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with NL Industries and Automatic Data

The main advantage of trading using opposite NL Industries and Automatic Data positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NL Industries position performs unexpectedly, Automatic Data can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Automatic Data will offset losses from the drop in Automatic Data's long position.

The idea behind NL Industries and Automatic Data Processing pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.